In a class action brought forward by 1,400 McDonald’s employees in the Bay Area, the 9th U.S. Circuit Court of Appeal ruled in favor of McDonald’s. The Court concluded the international fast-food chain is not a joint employer of its franchisees’ workers, meaning it will not be held liable for a franchisee’s wage and hour violations.

The plaintiff class members worked at McDonald’s franchises operated by the Haynes Family Limited Partnership. They alleged being denied overtime premiums, meal and rest breaks, and other benefits of the California Labor Code. The Haynes-operated franchises hired their employees, trained new employees, set wages through their own bank account, and scheduled employees’ hours. While the evidence exhibited McDonald’s may have been aware of Haynes’ state law violations, the 9th Circuit found no evidence suggesting McDonald’s had the requisite level of control to deem it as a joint employer under applicable California precedents.

This is a big win for employers concerned about joint employer liability. Falling under the spotlight during the Obama administration, joint employment gained heavy traction when employers began to shift to independent contractors and staffing agencies, with some businesses using this method as a way to avoid minimum wage, overtime, family and medical leave, and workers’ compensation contributions.

Not much has changed as legal disputes over joint employment are often brought up in situations involving franchise relationships, contracting arrangements, and staffing agencies.

Recent Challenges to Joint Employment

McDonald’s was recently challenged for joint employment by the National Labor Relations Board. Some franchisees’ employees claimed to have been fired for advocating a $15 minimum wage, as part of the Fight for $15 rallies and sued McDonald’s along with the franchisor.

The settlement used the Browning-Ferris standard, an expanded definition of “joint employment.” However, the proposed settlement was rejected for lack of important details that would not have put an end to the case. In the settlement, McDonald’s would have been able to avoid a ruling as being a joint employer of McDonald’s franchises and be held liable for franchisees violating federal labor laws. The fast-food chain also offered to pay between $20 and $50,000 to the individual workers who were fired for protesting.

Determining Joint Employment

With all of the class action lawsuits taking place over joint employment, the U.S. Department of Labor (DOL) proposed a four-part test for determining employer liability under the Fair Labor Standards Act.

Under the current regulations, two or more employers acting entirely independently of each other that are not completely dissociated (with respect to the employment of an employee who performs work for more than one employer in a workweek) are considered a joint employer. In the first revision in over 60 years, the DOL is seeking to abandon the “not completely dissociated” test with a new four-part balancing test.

These four key factors will reveal whether a potential joint employer has the capability to:

• Hire or fire employees;
• Supervise and control employee work schedules or conditions of employment;
• Determine an employee’s rate and method of payment; and
• Maintain the employee’s employment records.

Some additional factors may be considered if they are indicative of whether the potential joint employer is exercising significant control over the terms and conditions of the employee’s work or acting directly or indirectly in the interest of the employer in relation to the employee.

The DOL designed the proposed new rule to promote certainty for employers and employees, reduce litigation, and encourage innovation in the economy as the revisions will impact all industries. If put into effect, the DOL believes this rule will also create uniformity between court decisions and build stronger business relationships.

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